Why Invest in Oil and Gas?
U.S. production of oil and natural gas strengthens our nation by making us energy independent and cutting our need for foreign imports. That is always a good thing. Because of this window of opportunity, Congress has provided tax incentives to encourage domestic oil and gas production through private resources.
What are IDC's?
Intangible Drilling Cost (IDC) is 100% tax deductible the first year if you are a general partner. A $100,000 investment would yeild up to $75,000 in tax deductions during the first year of the venture. The intagible expenditures of drilling are labor, chemical, mud, fuel, etc.
What is a Tangible Drilling Cost Tax Deduction?
Tangible Drilling Cost (TDC) is 100% tax deductible. A $100,000 investment would yield $15,000 as tax deductions, called depreciation, over a five year period. The tangible drilling cost includes equipment, tanks, well heads, pumpjacks, lease costs, wellbore, etc.
What is a Small Producers Tax Exemption?
This tax benefit is not available to large oil companies, retail petroleum marketers, or refiners that produce more than 50,000 barrels per day. The “Small Producers Exemption” allows 15% of the Gross income (Not Net Income) from an oil and gas producing property to be tax-free.
What does Active vs. Passive mean?
A Working interest in an oil and gas well is not a Passive activity, therefore, additional tax credits and deductions can be offset against income from active stock trades, business income, salaries, etc. Section 263 of the Tax Code investment.